IEI vs. IGIB: How Does Government Bond Exposure Compare Against Corporate Bonds?

The iShares 5-10 Year Investment Grade Corporate Bond ETF (NASDAQ:IGIB) and the iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) both target the intermediate-term bond market but take different approaches: IGIB focuses on investment-grade corporate debt, while IEI sticks to U.S. Treasuries. This comparison highlights how their expense ratios, yields, historical drawdowns, and portfolio makeup may appeal to different risk and income profiles.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

IGIB has a substantially lower expense ratio and a higher dividend yield than IEI. Both funds have monthly dividend payouts.

Performance & risk comparison

What's inside

IEI holds 87 positions focused exclusively on U.S. Treasury bonds that mature in three to seven years, providing pure government exposure with minimal credit risk. The fund is nearly two decades old and holds AA bonds, the second-highest-rated bonds.

IGIB, in contrast, has 2972 holdings spread across the U.S. investment-grade corporate bond universe with maturities between five and ten years. It holds bonds that are issued by top companies, including Meta (NASDAQ:META), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC).

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

IGIB may look like the more appealing ETF, with higher returns, dividends, and a lower expense ratio, but investors should be mindful of the higher risk it entails compared to IEI. IGIB holds corporate bonds, with a near-equal allocation to A- and BBB-rated bonds and only six percent of bonds rated AA. IEI, on the other hand, holds only AA bonds backed by the U.S. government, which means that the bonds in its holdings are much less likely to default.

As bond ratings decline, they offer higher yields and returns because they’re riskier and more volatile. So, deciding between these two ETFs will come down to how much risk investors are willing to take on.

Regardless of which one investors choose, they should be aware that the bond market typically moves less than the stock market. There should be no expectation of significant price gains within a year unless a highly significant, unforeseen economic event occurs in the U.S. Patience is key when investing in bonds and bond ETFs.

Bank of America is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Adé Hennis has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.